HALISTER1: UST MORNING CALL: Rate Cut Expectations Should Fade, Citi Says

UST MORNING CALL: Rate Cut Expectations Should Fade, Citi Says

(Bloomberg) -- Market focus on month/quarter/half-year end which may drive price action today.
  • Risk/reward favor shorting front-end of curve, currently pricing ~20% chance of negative rates by end-2017 based on eurodollar options, Citi writes in a client note
    • Recommend paying 1Y1Y swap at 81bps, targeting a move to 1%, stop at 70bps; trade is of a tactical nature: Citi
  • Widely anticipated that re-balancing will favor equities at the expense of bonds, some of recent equity strength likely a result of this calendar related re-balancing, writes independent strategist Marty Mitchell in a client note
  • One catalyst which may spark a sell-off in rates could be an increase in the amount of issuance ahead in credit markets, given impressive demand for seen in new IG issues this week, writes BMO’s Aaron Kohli in a client note
  • Technicals:
    • Resistance: 133-10 (June 29 high), 133-18 (June 28 high), 134-07 (June 24 high)
    • Support: 132-14+ (50% of June 24 range), 131-01 (61.8% Fibo of June 24 range)
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Aaron Kohli (Bank of Montreal)
Marty Mitchell (The Mitchell Market Report LLC)

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